Group Purchasing Organizations: One Business Model with Two Safe Harbors Stephen Shaver and Daniel Ayyash, Wachler & Associates PC

July 9, 2021

For Healthcare Michigan

A Group Purchasing Organization (GPO) is a common structure in the healthcare industry. However, running a GPO in compliance with the Anti-Kickback Statute (AKS) involves a complex analysis of two distinct safe harbors under the AKS. A GPO is a negotiating agent that allows its members to leverage their combined buying power to obtain more favorable pricing and terms. Rather than each member negotiating with a given vendor independently, the GPO negotiates and maintains a master purchase agreement with the vendor on behalf of its members which allows the members to make purchases under the master agreement with better terms than the member could negotiate itself. A GPO is similar to other types of buying groups, but is a term of art in the realm of healthcare compliance. At its simplest, the members pay the vendor the discounted price negotiated by the GPO, the vendor pays the GPO an administrative fee, and no funds change hands between the GPO and its members.

However, both the administrative fees paid by the vendor to the GPO and the discounts offered to the members potentially implicate the AKS. The AKS prohibits remuneration in return for referrals or for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any goods or services for which payment may be made under a federal healthcare program, such as Medicare. Due to the potential breadth of this statute and its ability to sweep up legitimate business practices, the Department of Health and Human Services (HHS) has promulgated several “safe harbors” that exempt certain arrangements from liability under the AKS if particular criteria are met. In the context of GPOs, the administrative fees paid by the vendor to the GPO generally fall under the GPO safe harbor. Simultaneously, the discounts offered by the vendor to the members generally fall under the discount safe harbor. Together, these two safe harbors can exempt the GPO business model from liability under AKS if all criteria for the safe harbors are met.

The GPO safe harbor has three elements. First, the GPO must have a written agreement with each member that either provides that vendors will pay the GPO a fee of 3% or less of the purchase price of the goods or services provided by the vendor or, if the fee is not fixed at 3% or less, includes the amount or the maximum amount that the GPO will be paid by each vendor. This amount may be a fixed sum or a fixed percentage of the value of the purchases made from the vendor by the members under the GPO master agreement. Second, where the member is a healthcare provider, the GPO must disclose in writing to the provider at least annually, and to HHS upon request, the amount received from each vendor with respect to purchases made by or on behalf of the member. Third, the members of the GPO cannot be wholly owned by the GPO or be subsidiaries of a common parent entity that wholly owns the GPO. A payment from a vendor to a GPO that meets all of these criteria is generally not considered remuneration under the AKS.

The discount safe harbor, on the other hand, places requirements on both the vendor and the member. First, the discount must either be made at the time of the sale or, if the discount takes the form of a rebate that is given after the sale, the terms of the rebate must be fixed and disclosed in writing at the time of the sale. Second, the vendor, as the seller, must fully and accurately report such discount on the invoice submitted to the buyer and make other disclosures to the buyer. The member, as the buyer and party who ultimately bills the federal healthcare program, must disclose to HHS, upon request, the disclosures made to it by the seller. Different requirements may apply if the seller is billing the federal healthcare program or if the discount is offered by a party other than the seller. A discount offered to a GPO’s members by a vendor that meets these criteria is generally not considered remuneration under the AKS. However, in any event, this safe harbor does not apply to cash, cash equivalents, discounts on one product to induce the purchase of a second product, or a few other enumerated exceptions.

There are many versions of GPO business models and many facets of the analysis. However, what at first blush can seem like a complicated interplay between regulatory structures can be simplified when broken into its constituent parts. Each safe harbor must be addressed separately, but where the criteria of both are met, they can promote compliance of a GPO model with the rigors of the AKS.